Tag Archives: inventory


What’s Up with the Housing Inventory?

It’s All About Supply and Demand

Definitions of Supply and Demand:

 Dictionary.com

In classical economic theory, the relation between these two factors determines the price of a commodity. This relationship is thought to be the driving force in a free market. As demand for an item increases, prices rise. When manufacturers respond to the price increase by producing a larger supply of that item, this increases competition and drives the price down.

Investopedia.com

A theory explaining the interaction between the supply of a resource and the demand for that resource. The law of supply and demand defines the effect that the availability of a particular product and the desire (or demand) for that product has on price. Generally, if there is a low supply and a high demand, the price will be high. In contrast, the greater the supply and the lower the demand, the lower the price will be. The law of supply and demand is not an actual law but it is well confirmed and understood realization that if you have a lot of one item, the price for that item should go down.

In real estate appraisal context, the principle of Supply and Demand states that:

The price of real property varies directly, but not necessarily proportionately, with demand and inversely, but not necessarily proportionately, with supply.

My most simple explanation of Supply and Demand is: It is the relationship between sellers present in a market, which is the supply; and buyers looking, which is the demand. This relationship is reported in months’ supply of inventory.

So, what is the latest challenge?

Some (or most) might say that there are not enough “good” homes for sale. This could represent a shortage of supply, something we have not talked about for several years. It is allowing sellers to raise their asking prices and buyers who have been ‘shopping around’ are now willing to pay higher prices based on other homes they are comparing and/or contemplating to the home that they want.

Why do we have a shortage?

  • We are coming out of the worst decline (or correction) in real estate values for many generations – some pointing back to the early 1980′s, others are pointing back to the Great Depression.
  • In all of Chicagoland, our MLS showed a 37.6% decline in 5 years. The values hit their all-time high in the 3rd quarter of 2007 at $391,272, and by the 3rd quarter of 2012, they hit a low of $244,203.
  • The mean sales price at the end of the year in 2001 was $239,858, and year-end 2002 was $255,001. Therefore pricing as of the end of 2012 is at the same level that we were 10 years ago – sometime in 2002.

Why aren’t there many “good” homes for sale?

There are several contributing factors:

1. New construction – We are seeing new construction picking up again at all price points, which is certainly a positive. But with fewer builders, and more conservative approaches after getting burned, builders are not keeping up with the demand that is present. This is leaving buyers searching for resales. And because of the slowdown in new construction, (few new homes were built between 2007 and 2012) the nearly-new resales rarely exist.

Lack of new construction is a contributing factor as many builders folded or downsized significantly over the past 5-6 years.

2. Foreclosures – Foreclosures are a trend that is affecting supply of inventory. Banks are slower at foreclosing, in some cases taking over 3 years through the process. In some cases, the buyers aren’t even interested in these properties, and the investors are picking up these properties and flipping them at a profit.

Foreclosure properties, once viewed as a deal perhaps 25% to 40% under market values, are now being sold at only a 7% discount according to RealtyTimes.com.

3. Investors – Investors have entered the market at greater levels, some to purchase properties to rent, others to rehab and flip them. With the high inventory, investors were able to seek out the best deals, now there are fewer homes available for them.

4. Few people really want to sell at the bottom – Personally, I think the biggest reason that our inventory is low is simply because everyone wants to buy at the bottom; but what seller really wants to sell their home at the bottom of the market? That being said, there are many sellers who cannot sell.

Recently, I heard Steve Harney speak at the Leading Real Estate Companies of the World Conference; he stated there are over 10 million people that are still under water and cannot sell their homes. That is a significant number – these are ‘move-up buyers’ that will create a domino effect. A portion may also represent the potential downsizing buyers who have that upper priced home to sell. This is a very complicated situation. There are many opportunities in the market as demand continues to surge.

Move-up sellers have pent up demand and are ready to buy – if they can sell!

Remember, our market dropped 37.6% as a region since 2007 (some areas fell less than 20%, and other areas fell greater than 50%). The buyers with 20% down lost equity in their homes. Buyers with 5% or 10% lost substantial equity in their homes. If they sell today, they don’t have the down payment necessary for that next home.

Various predictions by “experts” suggest our recovery may be anywhere between 2% and 8% annually. At a conservative 4% annual rate of recovery, it is 5 more years before we can reach 20%.  Those who last purchased their home between 2006 and 2008 are being hurt the hardest in today’s market.

One positive is that renters are ready to purchase. Generation X and Y buyers now believe in homeownership; they want to get out of renting apartments because rents continue to go higher than taking out a mortgage. Interest rates remain at historic lows, with no indication of a significant increase of rates on the horizon.

From the 3rd quarter to the 4th quarter, Chicagoland saw its first quarter to quarter increase in sales price since prices began falling five (5) years ago. All indications are that this trend is continuing. But the increase, although welcome news, is very small. (+0.13%). Many communities throughout Chicagoland are seeing more substantial increases, some are not yet seeing increasing values. (44%, or 84 out of 191 communities) saw increases over the past quarter.

Back to Supply and Demand …

A balanced supply of inventory is considered to be 4 to 6 months. A balanced supply is going to be neutral in pricing, while an undersupply is going to lead to upward pressure on prices – a Seller’s Market. An oversupply will lead to downward pressure on prices – a Buyer’s Market.

Our supply of inventory is at its lowest level since the end of 2006 and most areas have been reduced to a balanced supply of inventory, with undersupply observed in many sub-markets in the region.

Chicago Detached housing is 3.88 months, and Attached housing (condos, townhomes, Co-ops and duplexes) is 2.87 months supply!

The anticipation is that the pricing will continue to be pressured upward as the desirable properties (in terms of location and condition/modernization) will be gobbled up. Remember the multiple-contracts driving up values last decade? Many agents are now experiencing these trends again.

Get ready for a wild and crazy ride as our real estate market in Chicagoland is pulled and pushed in all directions in 2013

This could lead to things that do not make sense in the crazed market. Real Estate professionals (Agents and Appraisers alike) must take care to understand all of the nuances in the market signaling the positives taking place.

Just what we need: more complications to try to understand.

Here are a few things to watch…

  • Watch the days on market (DOM). Take time to understand if an area’s high DOM may be due to stale listings of homes that are overpriced, distressed and/or in inferior condition.
  • Trend the increasing Sales Price-to-List Price ratios – in many sub-markets that I appraise in, I have seen these trend from 93% to 96% or higher just in the past year.
  • Track the number of pendings in relationship to the number of listings? One appraiser friend of mine tracks this and calls this “market velocity.” Right now, I see some areas where there have more pendings than listings in a given sub-market.
  • Are the pendings priced higher than the previous sales prices? Another indication of an increasing market that I am seeing in many areas.

Welcome to, we all hope, the Housing Market Recovery!

By: Chip Wagner on the KCM Blog


Best Places to Buy Foreclosures

In some parts of the country, it’s much easier to land a good foreclosure deal than in others.

In the Palm Bay, Fla. metro area, for example, buyers have plenty of foreclosed homes to choose from and pay an average of 28% less for repossessed homes than in conventional sales, according to RealtyTrac, an online marketer of foreclosed homes. Last year, nearly 24% of all sales were foreclosures.

As a result, it landed at the top of RealtyTrac’s best places to buy a foreclosure in 2013 list. Other metro areas where home buyers will have better luck include Rochester and Albany, N.Y., the New York City metro area, and Lakeland, Fla.

Those shopping around in McAllen, Texas though, shouldn’t hold their breath. The supply of foreclosed homes there are limited, according to RealtyTrac, and only made up 7% of all home sales last year. Other markets where it’s tough to find a deal on a foreclosed home include Ogden, Utah, Little Rock, Ark., Las Vegas, and Salt Lake City.

“The challenge of the 2013 market, for many cities, is a lack of [foreclosure] inventory,” said Daren Blomquist, RealtyTrac’s vice president. “The best places to buy are where a lot of homes will become available.”

Many foreclosures have been in limbo since fall 2010 following the so-called robo-signing scandal, when banks allowed employees to sign off on thousands of foreclosure documents a month with little verification.

The backlog in foreclosures had become particularly bad in judicial states like Florida and Illinois, where judges must approve the paperwork. But after a massive foreclosure abuse settlement was reached between the state attorneys general and the nation’s five biggest lenders, foreclosure processing has picked up again in those states.

The rebound in housing markets — gains in existing home sales, new home sales and home prices — has added strength to the case for buying foreclosures. Now that home prices are starting to stabilize, buying a foreclosed home isn’t as risky as it was a few years ago.

“The underlying fundamentals in many of those [top] markets are slowly improving, making it an opportune time to absorb additional foreclosure inventory this year,” Blomquist said.

Yet, not every bargain basement foreclosure is a good deal. Many are sold as-is and come with issues. Get the home inspected and have the heating, air conditioning, electrical and plumbing, as well as the structural integrity checked out before you sign a contract.

Also, analyze the neighborhood carefully and check out local crime rates. When there are a lot of foreclosures in one place they can drag down the home values around them. 

10 best places to buy foreclosures:

These markets have plenty of foreclosures to choose from and steep price discounts.

 
Graph

Source: RealtyTrac and Les Christie, CNNMoney

Shadow Inventory Shrinking…in Most Regions

The Mortgage Bankers Association (MBA) released their 3rd Quarter Delinquency Survey last week. The report revealed that both the delinquency and shadow inventory numbers are improving. DSNews, reporting on the survey, explained:

“The Mortgage Bankers Association noted in a Thursday report that a four-year low in serious mortgage delinquencies and a drop in the percentage of loans in foreclosure for the third quarter suggest fewer homes are part of the shadow inventory that’s always threatening prices and creating market uncertainty.”

This is great news. However, we must realize two things:

  • The inventory level is still four-times the normal average
  • Foreclosure backlogs still exist in certain judicial foreclosure states

Back in September, we explained that the foreclosure challenge in most parts of the country is diminishing with the major exception being the Northeast. A new report confirms that states in the Northeast are now leading the nation in percentage increase in foreclosure activity. In Realty Trac’s latest Foreclosure Market Report, it was revealed that:

“The three states with the biggest annual increases in foreclosure activity in October were New Jersey (140 percent), New York (123 percent) and Connecticut (41 percent).”

These same states were rocked by super storm Sandy which will result in a continued delay in these properties coming to market. RealtyTrac’s vice president Daren Blomquist explains:

“We continued to see vastly different foreclosure trends across the country in October, depending primarily on how each state’s foreclosing infrastructure was able to handle the high volume of delinquent loans during the worst of the foreclosure crisis in 2010. Unfortunately the three states dealing with the biggest rebound in deferred foreclosure activity— New Jersey, New York and Connecticut — also had to deal with the devastation to homes inflicted by super storm Sandy. The foreclosure moratoriums being put into effect as a result of the storm will likely extend the already-lengthy time to foreclose in these states, further prolonging a fundamentally sound housing recovery.”

Things are looking better in the vast majority of communities across the country. However, the Northeast should still be looking for prices to soften as Mark Zandi of Moody’s Ecnomy explained in a recent Wall Street Journal article:

“Some markets are still going to suffer more price declines.”

 

By: The KCM Crew, KCM Blog


Once-Invisible Inventory Can Be Seen on Zillow

Instead of finding clever ways to chase shadow inventory, Zillow has decided to make things easy for thrill-seeking homebuyers and investors who are trying to track down unlisted, invisible inventory.

The real estate data provider announced Thursday it is now providing information on 1.2 million pre-foreclosure and foreclosed properties at no cost. The homes provided through Zillow are not yet listed and apparently, are yet to be found on any Multiple Listing Service (MLS).

Before, only certain investors were privy to such information.

“For the first time, home shoppers are able to see the entire scope of housing inventory in their area, both pre-market and for-sale, side by side,” the company said in a release.

According to Zillow, 55 percent of homebuyers have considered purchasing a foreclosure, but the problem was where to find the information.

“This is another tremendous step forward in consumer empowerment. Zillow is taking information that was really only available to a select group – in this case, savvy investors – and making it more easily available to interested home buyers,” said Spencer Rascoff, Zillow’s CEO. “What’s more, bringing this information to light, and taking this inventory out of the shadows, can help bring these homes to market faster than ever before.”“

The pre-market inventory includes nearly 1 million pre-foreclosure properties, or homes that have begun the foreclosure process or have been scheduled for auction.

In addition, Zillow’s inventory has more than 260,000 unlisted foreclosed properties.

Zillow will also include its own estimate of the sale price of the home if sold as a foreclosure with the percentage and dollar discount based on fair market value. Foreclosure details will also be included, such as the timeline of the foreclosure process, unpaid balance, and the lender.

Another added feature will be 147,000 Make Me Move properties. For this feature, homeowners name a price for which they might sell their home.

Users can view pre-foreclosure, foreclosed, and Make Me Move inventory by visiting Zillow.com and conducting a search using the pre-market filter. Foreclosure details are available for those who sign in.

Seattle-based Zillow is a real estate information marketplace and provides information about homes, real estate listings, rental listings, and mortgages through its mobile applications and websites.

By: Esther Cho, DSNews


Is the Industry Seeing Sunlight Break Through the Shadows?

The shadow inventory that previously darkened industry outlook is beginning to fade. In fact, we may soon begin to see the sunlight on the horizon.

In July shadow inventory – unlisted homes that are seriously delinquent, in foreclosure, or held as REOs – declined 10.2 percent year-over-year, falling to 2.3 million homes, according to CoreLogic’s Shadow Inventory Report released Tuesday.

“This is yet another hopeful sign that the housing market is slowly healing,” said Anand Nallathambi, president and CEO of CoreLogic.

Last July’s 2.6 million-home shadow inventory was eerily close to the level recorded two years prior in May 2009. Now, the heavy shadows are lifting.

The current shadow inventory is valued at $382 billion, down from $397 billion in July 2011.

The current shadow inventory equates to a six-month supply, according to CoreLogic.

The analytics firm also reports the rate of distressed sales taking homes out of the shadows is close to matching the rate of newly seriously delinquent homes falling into the shadows.

Seriously delinquent homes – those 90 or more days delinquent – are the most common type of home in today’s shadow inventory, making up 1 million of the 2.3 million-home total.

About 900,000 homes are currently in foreclosure, and another 345,000 are in REO.

Despite fading shadows nationally, some states continue to struggle with long foreclosure timelines.

“While a lower outflow of distressed sales helps alleviate downward home price pressure, long foreclosure timelines in some parts of the country causes these pools of shadow inventory to remain in limbo for an extended period of time,” said Mark Flemming, chief economist at CoreLogic.

Forty-five percent of the shadow inventory is concentrated in five states – Florida, California, Illinois, New York, and New Jersey.

By: Krista Franks Brock, DSNews


Shadow Inventory Down…in Most States

 

 

 

 

 

 

 

 

 

 

CoreLogic, in their most recent foreclosure report, revealed that approximately 1.3 million homes, or 3.2 percent of all homes with a mortgage, were in the national foreclosure inventory as of August 2012 compared to 1.4 million, or 3.4 percent, in August 2011. Month-over-month, the national foreclosure inventory was unchanged from July 2012 to August 2012.

CoreLogic identifies foreclosure inventory as “the share of all mortgaged homes in any stage of the foreclosure process”. Their report revealed that 32 of the 50 states have seen their percentage of foreclosure inventory decrease compared to last year. Though foreclosure inventory is slowly shrinking nationally, some states are headed in the opposite direction.

The four states with the highest foreclosure inventory as a percentage of all mortgaged homes according to CoreLogic:

  • Florida – 11%
  • New Jersey – 6.5 %
  • New York – 5.2%
  • Illinois – 4.8 %

These numbers coincide with those reported by LPS in the recent Mortgage Monitor which revealed that foreclosure starts in judicial states increased by 21% month-over-month while decreasing by 3% in non-judicial states. All the states listed above are judicial states.

LPS ranked states by how long it would take to clear their shadow inventory at that states’ current sales pace for foreclosed properties. Using that measure, New York and New Jersey have a much larger pipeline of distressed properties than any other state. (Florida and Illinois are not on this list because they are clearing their distressed properties at a much faster pace. Their pipeline is shrinking more rapidly).

These facts caused Mark Zandi, chief economist of Moody’s Analytics, to report:

“Shadow inventory is falling in much of the country –except for the Northeast. The implication is that house prices will be much weaker in the Northeast in coming years as these distressed properties eventually get sold.”

 

By: The KCM Crew, KCM Blog